2/18/2002 @ 12:00AM

Fact and Comment

ENRON

In the aftermath, auditors of publicly held companies will become accountable only to the shareholders, not to a company’s top management. That means the auditors will be hired and fired by the board of directors’ audit committee. It will be the audit committee telling management who’s going to be looking over the books rather than the other way around. The audit committee will determine fees, and it will approve the actual payment of those fees. Management won’t be able to terminate the services of public accounting firms; only the audit committee will have that power. Management will be able to complain about the auditors, but that’s all it’ll be able to do. If there are major disputes between management and outside examiners, the audit committee will have to know about those conflicts.

Other than taking care of routine regulatory filings with the Securities & Exchange Commission (SEC) and perhaps preparing company tax returns, outside auditors will be barred from providing services to publicly held companies whose books they are auditing.

The SEC should be able to do most of the job of overseeing accountants and accounting rules. If legislation is needed to reinforce the notion that accountants are to work for the shareholders and the public, a now-cowed Congress will quickly comply.

But let’s not kid ourselves. Some managements will still be tempted to cook the books, though they’ll have less cover and opportunity. Be that as it may, there are still going to be speculative booms. After all, numerous now-busted dot-coms never resorted to Enron-style sleights-of-hand to attract capital. They had no profits and often no sales, but investors still desired those dot-com shares. These speculative bubbles are similar to one definition of love–a willing suspension of disbelief.

TAXING INTERFERENCE

A major, four-year trade tussle has erupted again between the European Union and the U.S. The bone of contention is a $4 billion tax break Uncle Sam gives to companies on some overseas sales. An appeals panel of the World Trade Organization (WTO) recently ruled that our Extraterritorial Income Exclusion Act (ETI) is an illegal subsidy. (ETI replaced a similar law the WTO ko’d a couple of years ago.) If we don’t repeal the alleged subsidy, Europe will be able to impose what could be crippling tariffs against various American products.

The WTO has blundered here. It has no business passing judgment on a country’s tax laws. Tariffs on products and services? Of course. Ditto trade quotas for nontrade barriers, such as inspection rules designed to keep competitive products out. Tax codes? They are not part of the WTO charter.

Europeans make us look like pikers when it comes to employing tax codes to subsidize exports. Biggest example: rebates on value-added taxes (VAT) for exports. The cost of that giveaway is billions of dollars more than that of ETI. Every tourist knows that when you buy a pair of shoes, a suit or a piece of jewelry in Europe, you fill out a refund form for the value-added tax–which can often effectively reduce the price of the product by 15% or more–and you turn it in to Customs officials at the airport.

Behind the scenes, U.S. Trade Representative Robert Zoellick should warn the EU that we will go after them on the VAT refund scheme if they get too truculent on ETI. At the same time, we should be able to reach a sensible settlement by offering some modifications to our upcoming “antidumping” tariffs on steel imports. And we should make it clear to the WTO that if it prizes its life as an institution, it should keep its mitts off countries’ tax codes.

DO THIS ONE RIGHT

The special fund set up by the federal government to compensate families of those who died in the terrorist attacks on Sept. 11 has two controversial parts to it that ought to be overturned. One is Congress’ stipulation that the amount of money received by families from the fund be reduced by insurance policy proceeds and other death benefits. Why should people be penalized for being prudent? Instead of agents snooping into families’ finances, everyone should be treated equally. Congress should immediately pass an amendment to that effect.

The other controversial rule concerns payment for pain and suffering. The fund administrator, Kenneth Feinberg, has decreed that each victim’s family will get a flat $250,000 and each spouse and dependent will get an additional $50,000. Talk about stingy, particularly in this day and age of outlandish judicial awards. How typical that Washington, which prolifically throws money at thousands of dubious projects, should get parsimonious with the immediate kin of victims of an act of war. Beltway bean counters concerned about keeping down costs can salve their Scrooge-like consciences with the fact that the number of dead is about half the original estimates. So double the compensation amount. Better yet, triple or quadruple it. Get tightfisted, instead, where it counts–where there is waste and little discernible public good.

END THIS SPITEFUL STANCE

Upwards of 1.5 million American children are now educated at home. Homeschooling has mushroomed as government-run schools have failed to fulfill their missions. Not surprisingly, education bureaucracies have long waged cold wars against home-school parents. One area of dispute is the exclusion of home-schooled kids from athletics or other extracurricular activities, such as drama, at public school facilities. Only 11 states have laws requiring schools to allow kids who are home-schooled to participate in these nonclassroom activities. One father in Pennsylvania is suing to permit his home-schooled son to take part in a public school sports program. Pennsylvania educrats should relent on this, as should the school systems that ban home-schoolers in the 38 other states. Remember, home-school parents pay property taxes. If school officials insist on barring these children, the courts or state legislatures should step in and put out the welcome mat.

A STAND-TALL DEMOCRAT

Too bad there are not more democrats like Georgia’s senator Zell Miller, who combines the pro-growth, tax-cutting economics of John F. Kennedy with the strong defense principles of former Senator Sam Nunn. This no-nonsense, former two-term governor has repeatedly expressed frustration over Capitol Hill’s inability to overcome the petty partisan politics practiced by Senator Tom Daschle (D-S.D.) et al. Early on in the Bush presidency, Miller supported the President’s tax cut package, recognizing before most of his colleagues that the economy was faltering. And after Sept. 11 he caught flak when he declared that, concerning terrorists, the U.S. should “bomb the hell out of them.”

Last month Miller spoke to the Georgia Chamber of Commerce, lobbing one politically incorrect grenade after another. He said last summer’s tax cuts should be made permanent. He lambasted his party’s leadership for wanting to repeal reductions that haven’t yet gone into effect: “How can anyone make any long-term plans for a business or a family with a here-today, maybe-gone-tomorrow tax cut, a tax policy that has a perishable date on it, like a quart of milk?” He also plumped for cutting the capital gains levy, understanding a fact missed by many economists, Potomac pols and pundits: “We are in a slump because venture capital fell 74% the past year.” He pooh-poohed the notion nurtured by Daschle, Senator Ted Kennedy (D-Mass.) and others that Bush’s tax cut brought on the recession: “This economic slowdown had begun before we passed the tax cut, and most of it hasn’t even gone into effect.”

Miller has little patience with one favorite pastime of his party’s liberals–blocking confirmation of presidential appointees. “Every President should be able to select his own team and make out his own batting order. He is the leader and the one who ultimately should and will be held accountable.”

Miller also opposes oppressive, nonsensical regulations: “I also broke with my party on the ergonomics issue we overturned [those] outrageously expensive workplace safety regulations put in place by the Clinton Administration.” Miller supported drilling in Alaska’s Arctic National Wildlife Refuge (“The entire footprint of oil drilling would be less than 3 square miles in total. Three square miles out of the ANWR area, which, itself, is about the size of South Carolina.”)–another liberal no-no.

On defense, this onetime leatherneck is a strong supporter of the President’s war on terrorism and advocates undertaking operations to remove Saddam Hussein once and for all. And he thinks we should “give serious thought to resuming the [military] draft.”

In short, Miller is a maverick who follows his principles rather than what is fashionable with the Washington press corps.

Here is the distilled wisdom of brothers Bob, Kip and Tim, and other FORBES eatery experts Tom Jones, Patrick Cooke and Monie Begley.

Thom–60 Thompson St., between Broome and Spring streets (Tel.: 219-2000). Delicious fusion of East and West. To start, try the grilled squid or the tasty tuna tartare flavored with ginger. The sea bass with chanterelles is almost as good as the pan-broiled filet of beef with potato pancakes and fresh wasabi. For dessert try the chocolate macaroon mousse, the maple crépe with tart apples and cherries or the pineapple banana crisp.

Marchi’s–251 East 31st St. (Tel.: 679-2494). Sad and disappointing, this is a tired, overlit, dreary establishment, with a set menu, faux paneling, ineffective waitstaff and mediocre food. There are other infinitely better, genuine old-fashioned and traditional Italian restaurants in Manhattan and the outer boroughs.

Il Mulino–83 West Third St. (Tel.: 673-3783). Well-deserving of its year-end Three Stars. The garlic bread alone is worth a pilgrimage. The choices are manifold and all are bella, bella, from the light, moist bronzino to the ravioli in a rich cream sauce. Tiramisu, too.